Should I buy term life insurance or
permanent life insurance?
The amount of
insurance you need, how much of your budget you want to allocate toward
life insurance and for how long you need the insurance are all factors in
determining whether to purchase term or permanent life insurance. If you
need a large amount of coverage, term insurance may be the most affordable
method of purchasing that coverage. If you want coverage for more than a
30-year period and/or you want to consider a financial savings component
in addition to pure life insurance coverage, you may want to consider
permanent insurance.
How much insurance is enough?
Your need for life
insurance will vary based on the degree others are dependent on your
income and the future value of your earning potential. As you take on more
responsibilities by getting married, buying a home and having children,
your need for life insurance increases. As a general rule of thumb, most
people need the equivalent of ten times their annual income in life
insurance coverage. This quick method is surprisingly accurate for most
consumers' needs. For example, a person earning $50,000 a year would need
approximately $500,000 of coverage.
How does the insurance company
determine my rate class?
Many factors effect
the rate you receive from the insurance company. Some of the factors
include your medical history, the lab results (if any), family history,
participation in dangerous avocations, financial situation, tobacco usage
and citizenship status. Should I own life insurance on a spouse or child?
In a two-income household, both spouse's earning potential need to be
protected. Life insurance on a non-income earning spouse is recommended in
case the breadwinner needs to hire a nanny to care for remaining children,
take some time off work to spend with the family or change professions in
order to spend more time with the children. Life insurance for children
may be purchased with a "child rider" on a parent's policy or an
individual permanent policy for children.
How will the death benefit be paid?
The
beneficiary has the option of being paid in a lump sum, receiving payments
over a set number of years or taking the benefit in an annuity.
What is the tax treatment of life
insurance death benefits?
Although
life insurance proceeds are generally exempt from income taxation, they
are subject to estate and inheritance taxes. For more information on
estate and inheritance taxes, see your tax advisor.
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